Disorderly exit – Are there regulatory lessons to be learnt from the demise of Corinthian Colleges

I have been following the sad and sorry tale of Corinthian Colleges in the US with some interest. For those who haven’t, a very brief summary is as follows:

Corinthian was a for-profit provider founded in 1995 which grew rapidly through a combination of acquisitions and organic growth until it had around 100 campuses across North America. There were concerns about its student loan repayment profile and about some of its data (the company denied any wrong doing in this regard) and numerous investigations were launched into the chain. In the summer of 2014 the chain’s access to federal loans was temporarily suspended which led to it announcing that it could not continue as a going concern. This in turn led to a rapid intervention by the Department of Education to secure an orderly exit in the interests of the chain’s 72,000 students. It had some success; several campuses were sold. But not all, and on 26 April the chain announced it was closing its remaining 28 campuses with immediate effect leaving some 16,000 students affected.

I can’t claim to be familiar with the particular regulatory framework that applied to Corinthian, and indeed it appears that in the federal structure of the US, there may have been more than one framework at play. What interested me, however, was what this saga might tell us about possible pinch-points in the brave new regulatory framework that is under consideration in England, in particular around the concept of an “orderly exit”.

These include:

  1. The importance of speed in regulatory intervention. Traditional universities are commonly regarded as slow to change, with plenty of time for monitoring and measured intervention. The Corinthian case study gives the impression of a regulator blindsided both by the speed of growth and the speed of the decision to close. How can we ensure a regulatory system that can respond swiftly to such developments?
  2. The impact of the regulatory action and the publicity surrounding it on the prospects of securing a satisfactory outcome for students. Corinthian complained that the regulatory action taken against it made a sale of its business impossible and affected its ability to access transitional funding. On the flip side, to try to assist a sale as a going concern, regulators appear to have allowed Corinthian to continue to recruit new students with the result that some of those now without a provider only enrolled in January this year, The action taken to safeguard the student interest may therefore have unintentionally adversely affected the interests of students.
  3. The dependency on other providers and stakeholders to “step-in” and clear up the wake of provider failure. There are 16,000 students now who through no fault of their own are left without a place to complete their studies. As a parting shot, Corinthian made the point that its ability to transfer these students was constrained by an inability to find another provider to take them. The question is how a regulatory framework can protect the interests of students that no other provider may want.
  4. The number of different bodies involved in investigating or regulating Corinthian and the seeming absence of any co-ordination between them. Less of an issue in the UK, for sure, but differing directions of travel in the devolved administrations may raise the potential for fragmented and incomplete action.

It is easy to speak of a system for “orderly exit” but much harder to devise one. The reality of a more fluid HE “market” is that there will be provider failure, and regulatory interventions may have unintended consequences. Learning what lessons we can from case studies elsewhere will be important.

Smita Jamdar
Partner and Head of Education
For and on behalf of SGH Martineau LLP
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From → General Interest

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